State governments that will have to take over the bulk of their poorly managed state electricity boards’ (SEBs) loans under a revised financial restructuring scheme will be allowed to shift coal linkages from their older, less efficient sub-critical power plants to their supercritical units.
On average, this could lead to a 25% saving on the variable cost and enable the boards to increase the units of electricity produced from the same quantum of fuel by a quarter, according to government sources. “The idea is to cut costs of these SEBs. This measure will also ensure that more efficient plants are utilised in full,” a top government official told FE.
Currently, a generation capacity of 36,000 MW with old power plants are running at around 50% capacity while newer units of 40,000 MW are running at higher plant load factors of 60-70%. Yet, among them, the supercritical units could almost fully absorb the capacity from the older units that could be shut down, while continuing to get paid the capacity charge as per the respective power purchase agreements.
Once the older plants are eased out, the states could also get new ultra mega power projects built on a public-private partnership basis at the same sites, given that many of them have surplus land and the approvals would be relatively hassle-free.
In absolute terms, the diversion of coal from old to new plants could translate into a saving of 40-50 paise per unit of electricity depending on how much of the thermally inefficient older power plants are substituted by the newer and more energy-efficient ones. (This assumes that the average cost of power at new plants is Rs 3.50 per unit and that the capital charge is roughly 40% of this.)
Right now, the older power plants work on a station heat rate of 2800 kcal per unit of power as compared to 2100 kcal for the newer power plants. In other words, an efficiency increase of 25% can be got by shifting all the coal to newer plants. Given an average coal cost of around Rs 2 per unit of power, that’s a saving of 50 paise per unit of power.
Analysts, however, added that the saving per unit could be even higher given the potential gains from the economies of scale at supercritical units (you might, for instance, need to store less coal for the same amount of production). Of course, the arithmetic would change in each case with the changes in fuel transportation costs the diversion of coal would entail and the relative efficiency levels of the respective old and new units. “Shortage of coal is no longer an issue with many of the new SEB plants. They are not operating at full capacity because of inadequate power demand,” said an energy sector expert.
The coal diversion facility is among the many steps the Union power ministry is contemplating to soften the blow to states that will require to take over SEBs’ outstanding debt, which stood at a staggering Rs 2.6 lakh crore in FY14. As reported by FE earlier, the fiscal deficit limit for states would be relaxed for a year or two to equip them to take over the SEBs’ debts and service them at a concessional interest rate. The states would, however, need to take steps to reduce the SEBs’ aggregate technical and commercial losses from the current average of 27% to 15% with substantial financial help from the Centre to create the necessary technology infrastructure. Also, the SEBs would require to have a structured mechanism for frequent (monthly) tariff revisions to ensure that unbridgeable revenue gaps don’t occur in the first place.
According to sources, power minister Piyush Goyal along with the Central Electricity Authority (CEA) is also nudging states to upgrade their older plants with supercritical units. The CEA has prepared a report on the power plants that could be possible candidates for a revamp. “Replacement of old units by new supercritical units is being encouraged by the government and the coal ministry has already issued guidelines for automatic transfer of coal linkage from older, sub-critical plants to new ones,” the CEA report on renovation and modernisation of power plants said.
While the scheme for diverting coal is likely to be available initially for government-owned entities, it could later be extended even to private power generating companies, sources added. However, an official from state-run NTPC told FE that the scheme would only have a limited use for the company as it periodically modernises its plants. He added that the company also has plans to bundle power from its old plants with solar power to make its upcoming solar capacity more affordable. (Even older thermal plants produce power at lower costs than solar units.)
In keeping with the policy to rationalise coal linkages, the government had earlier allowed gencos to swap coal linkages among them for their mutual benefit and greater efficiency, depending on the distance of their plants from the coal source. The scheme is being implemented by central PSUs and some state-owned gencos.
The young blood takes over
** With coal diversion… 18,000 MW of operating capacity with old SEB plants to be absorbed by the boards’ own super critical units
* Given the difference in thermal efficiency between old and new units, 25 % saving on fuel cost likely
* With the same coal quantity now with old plants, the corresponding generation could rise by a quarter